Ghana’s economy is showing signs of recovery after a devastating economic crisis that led to a default two years ago. However, the aftermath of an unprecedented local debt restructuring continues to cast a shadow over the nation’s long-term growth prospects.
The restructuring, a first in Africa, has severely impacted the country’s local bond market, forcing the government to increasingly rely on short-term, higher-interest Treasury bills and private placements. This shift toward costlier forms of financing is raising alarms among investors concerned about the country’s fiscal sustainability.
“The appetite for government debt is virtually nonexistent, regardless of the compensation offered,” said Daniel Ankomah, Chief Investment Officer at SAS Investment Management in Accra. “Rebuilding market confidence will be a gradual process and could take years, possibly even a decade.”
As Ghana prepares for elections on December 7, further concerns are emerging over the government’s potential for increased spending in a bid to sway voters. The leading candidate’s campaign promises have intensified investor unease regarding the country’s fiscal stability.
In defense of the debt restructuring, Ghana’s Finance Ministry argued that the difficult but necessary process has restored debt sustainability. “We expect to re-enter the domestic bond market in 2025, following a two-year hiatus,” the ministry said. “This timeline is in line with expectations for an improved macroeconomic environment, particularly in regard to inflation.”
The International Monetary Fund (IMF) has supported the government’s stance, acknowledging the temporary reliance on Treasury bills. “This approach is expected, and ongoing fiscal tightening will reduce the need for financing,” the IMF stated. “These measures should enhance confidence in government securities and facilitate a gradual extension of their maturity profile.”
Unlike most debt restructurings, which shield domestic stakeholders such as pension funds and banks, Ghana’s substantial domestic debt burden made such protections impossible. Years of heavy borrowing, compounded by the global economic effects of the COVID-19 pandemic and rising food and fuel prices due to the war in Ukraine, led to a dramatic rise in Ghana’s public debt, from 63% of GDP in 2019 to 92.7% by the end of 2022.